Economics- Contrary to popular belief, making the business case for making sustainability ‘operational” within an organizational supply chain is becoming easier, not harder. With the availability of more data from ‘first movers’, procurement managers, environmental directors, design engineers, marketing/communications staff and operations managers (among others) are able now to make strong business cases in favor of looking at operations through a green lens. In addition, barriers to global trade brought on by increasing environmental regulations, more stringent restrictions on hazardous substances, greater emphasis on lean manufacturing, and increased supplier auditing and verification are creating the critical mass toward a new norm in supply chain management and expectations. Seeking efficiencies in supply chain management and producing products while reducing waste continue to be a vital imperative in a recovering economy. Those who neglect to critical evaluate their operations from a sustainability point of view this year will be cast to the side.

Climate Action- Supply chain sustainability is affecting shareholder value, company valuations and even due diligence during proposed mergers and acquisitions, the report said. It added that shareholder actions on sustainability performance and transparency were up 40% in 2009. An article in the Environmental Leader last month described how climate change was playing an integral role in corporate supply chain decisions. A very insightful report by Ernst and Young note that “As carbon pricing becomes established in various jurisdictions, organizations will face risks from compliance obligations. This will impact cash management and liquidity, and carbon-intensive sectors may see an increase in the cost of capital.” Still much work still remains to infuse green thinking in the C-Suite. Little more than a third of those executives surveyed indicated that they were working directly with suppliers to reduce their carbon footprint, or have just started discussing climate change initiatives with their suppliers. And now, the World Resources Institute is completing authoritative new supply chain and product lifecycle greenhouse gas protocols that will frame what’s expected to be a burgeoning wave of value chain sustainability accounting and reporting. Stay tuned!

Disclosure and Accountability- As I’ve previously noted, supply chain management became widely recognized in 2010 as a key factor in measuring the true “sustainability” of an organizations practices and processes, and ultimately its product or service. Increased attention will be paid this year on conflict minerals (because of the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), fair labor and other social aspects of sustainability, ongoing management of hazardous substances in toys and other consumer products, and looking at the supply chain to manage risks and liabilities from product recalls and other environmental impacts of products and services. The concept of “materiality” in corporate social responsibility and product disclosure (FTC Green Guidelines) and SEC financial reporting is taking on new meaning from a supply chain perspective. ‘Materiality’ in terms of supply chain or network management will require more rigorous implementation and oversight of ethical business practices and practicing proactive environmental stewardship through-out a products value chain. Suppliers play a key external role in managing the environmental, social or financial issues within the product value chain. I will treat the issue of sustainable supply chain management and materiality in an upcoming series. Watch for increased supplier requirements, third party verification (like ISO 14001, GS-GC1 and ULE 880) and more upstream accountability.

Innovation and Collaboration– the emergence of collaborative opportunities among larger manufacturers creates entry points in the market for smaller, intermediate products manufacturers as well. Larger companies are identifying the critical supply chain partners that have the greatest product impact and begin seeking ways to collaboratively address the environmental and social footprint of their products through the value chain. A new report even suggests that consumers will play a leading role behind greater supply chain collaboration. The report, by CapGemini suggests that while suppliers are independently seeking more open, collaborative ways to move goods, consumers may be “… the trigger for an optimized collaborative supply chain flow: this next level of supply chain optimization is based on transparency and collaboration.” More specifically, “Consumer awareness about sustainability demands a more CO2-friendly supply of products and services”, the report notes.

Life Cycle Design and End-of-Life Product Management– There are increased challenges that the waste management industry is facing, wider attention paid to greener packaging and increased emphasis on financial accountability is being felt in world markets. Establishing a reverse logistics network that supports life cycle design, Extended Producer Responsibility (EPR), and “demanufacturing” processes will take on higher meaning in 2011. According to a recent white paper issued by sustainability expert and colleague Gil Friend, EPR is a market-based approach that effectively assigns end-of-life responsibility and product stewardship to producers, requiring them to meet specific targets for material recycling and recovery, relative to the total amount of packaging that they have put into the marketplace. EPR helps to shift the responsibility for collecting packaging and end of life products from financially tapped out local government to producers. But upstream of the manufacturing process, EPR success can be achieved through incentives for companies to take a closer look at how they design products for better end-of-life management (life cycle design). Producers are not alone in addressing the social and ecological impacts of their products. Manufacturers must engage their supply networks to help drive EPR upstream; however, downstream customers play a role too. So producers and consumers should strive in 2011 to continue a dialogue about what to do to improve the profile of consumer products in a way that’s a win-win for all affected stakeholders.

So there it is from my view of the world. Five sustainability and supply chain challenges that were framed out in 2010 and look to stick in 2011.

In Part 1 on this series, I presented some definitions of reverse logistics from a traditional versus sustainability focused mindset, and extended product responsibility.

Reverse logistics includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. It also includes recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery. While product “take-back programs” have been a part of many companies operational playbook for some time, more sophisticated approaches are emerging which involve greater degrees of coordination and planning among multiple suppliers.

For a logistics practitioner, the best value choice for disposition is still often determined by the most profitable alternative:

Reconditioning – when a product is cleaned and repaired to return it to a “like new” state

Refurbishing – similar to reconditioning, except with perhaps more work involved in repairing the product.

Remanufacturing – similar to refurbishing, but requiring more extensive work; often requires completely disassembling the product

Resell – when a returned product may be sold again as new

Recycle – when a product is reduced to its basic elements, which are reused – also referred to as asset recovery.

Product take-back programs

Product take-back programs are particularly popular in the retail sector, as manufacturers reap the benefits for material recovery while customers find convenient ways to jettison used products for recycling (printer cartridges, used computers, aluminum cans, tires, batteries, etc). As my first post mentioned, restricted materials directives in Europe such as WEEE and RoHS have for years been dictating how manufacturers manage “end of life” equipment issues. In his book aptly named “The Truth about Green Business”, Gil Friend describes a series of steps that retailer Patagonia and manufacturer Hewlett Packard (HP) have taken to close the loop on product manufacturing to mutual benefit. In particular, to meet the growing demand to manage end of life issues for computers and other electronics, HP and mining company Noranda crafted a take back system in the early 2000’s that is unique. The system covers pickup, transportation, evaluation for reuse or donation, and recycling for products ranging from printers to scanners. Noranda provides HP and other OEMs with disassembly, product testing and metal recovery services. Part of this process involved installing efficient warehousing systems that electronically tracked materials through the recycling process. About 3.5 million pounds of materials are processed annually. Dell Computer Corporation also has a similar take-back program, aimed at its leasing customers and other large companies that may have Dell units. Dell Financial Services handles the asset recovery for customers and the viability of the units determines how they are recycled/

Turning Trash to Into New Products

In a post this week by author Marc Gunther, Walmart announced that as part of its efforts to reduce its waste streams from its retail and distribution centers, they are working with one if its suppliers (Worldwise) to begin what it calls the Full Circle program. This program creates a closed-loop system that takes old plastic bottles, clothes hangers, plastic bags and corrugated cardboard and makes new products from materials that would otherwise be waste- and turns them into eco friendly pet products that are in turn resold in Walmart stores. And there you have it-trash to treasure through “upcycling”.

Quoting Gunthers post, “We’re committed to creating zero waste,” explains John Kunkel, senior buyer, pets for Walmart. One way to get there is to take things that Walmart throws away and instead of sending them to a landfill, make them into something useful.” The effort reportedly took more than a year and was coordinated with “seven or eight different divisions of the company.” according to Mr. Kunkel. After Walmart’s waste is baled, it is separated into its components at materials recycling facilities. Then the baled waste is trucked to supplier Worldwise’s North American manufacturing plants. The products that result are then shipped to distribution centers and to all of Walmart’s U.S. stores. “We’ve had to create a playbook,” Kunkel said. “Now other manufacturers can implement a closed loop in their business.”

Once you can get a handle around which products pose the greatest asset value in terms of recoverability, the next phase is in looking for potential ways to reprocess or reuse waste byproducts or other manufacturers that may be turn your waste into their product feedstock. Either way it’s a win-win-win- for your company, your customers and the environment.

Further posts will focus on proactive steps that companies can take to design sustainability in product manufacturing, and ways to coordinate reverse logistics campaigns with suppliers and customers.

Meantime, it would be valuable to this readership if you’d consider sharing what your company is doing to “lighten the environmental load” on the planet and in your manufacturing process.

Reports surfaced this week about a Deloitte survey of a relatively small group of 50 executives taken from late 2009 to early 2010. However, the survey covered five industry sectors: automotive, consumer products, process and industrial, technology, and telecommunications.

While there was disagreement in some industry’s over what constituted a ‘green job’, there was widespread agreement in a number of areas. Almost all surveyed indicated that sustainability priorities were at least partially aligned with their companies’ priorities. A total of 65 percent discussed priorities related to improving the environmental sustainability of their companies’ products.

Also, according to the survey, there were several areas of ‘greatest opportunity’ for becoming more sustainable while enhancing business profitability:

The survey indicated a clear recognition (and a growing one) that ‘sustainability’ as a business enhancement plays an importance role in the future of business. In its summary, Deloitte cited four key success factors that can aid a company’s ability to leverage sustainability, increase business value and emphasize supply chain management:

– Aligning sustainability strategy with business strategy.

– Integrating sustainability into operations and processes across the value chain.

– Setting up a governance structure that is supported by the right infrastructure.

On the supply chain point, the survey recommended as I have several times in this space the importance of driving sustainability upstream (vendors) and downstream (customers) in the product/service value chain through collaboration. Efforts taken throughout the value chain broadens the reach of sustainability initiatives and makes it less isolated.

Implications to Supply Chain Management

So if you’re a supply chain pro (as I assume that if you’re here, that’s the case), you may be asking “Where do I get started down this green path’?” The aspects of supply chain management that can benefit from a sustainability focus, are well, all of them: product design, planning/ forecasting, manufacturing, order management, transportation, distribution, service management and reverse logistics. However, if you wish to start somewhere and get some huge bang for your buck, start with sourcing and procurement.

When you think of sustainable sourcing, consider it as a process of purchasing goods and services that takes into account the triple bottom line or TBL (People, Planet, Profit) aspects of a product and its use. Sustainable sourcing considers how products are made, where and from whom they (and their components) come from, how they are transported, and how they are ultimately disposed of. Companies excelling at sustainable sourcing strive to ensure that their products and components meet or exceed environmental and social expectations.

To meet this need, many organizations are revamping their spend analysis tools to layer in a sustainability component (looking at the Total Cost of Ownership (TCO), or full range of costs- from an environmental and social perspective as well as financial). Simply put, TCO is:

Total Acquisition Cost- Total Lifecycle Cost = Total Cost of Ownership

In future postings, I will delve more deeply into TCO related methods to supplement spend analysis in the procurement process. In the meantime, rest assured that more companies that are seeking to manage the life cycle environmental impact of their products. They’re finding sustainable procurement to be a valuable tool to quantify and compare a product or component’s lifetime environmental and social impact while positioning the company for smart growth in a rebounding economy.